Dental Associate Agreements

Here is a guest blog post from our friend Carl Guthrie from ETS Dental.

Associate Agreements (contracts) can suffocate us at a time we should be reveling in a new opportunity.  However, many dentists don’t understand what is in their contracts, in turn complicating the process and turning this joy of new opportunity into a whirlwind of anxiety and trepidation.

This article is not intended to be legal advice.  

ALWAYS consult an attorney or legal expert in your jurisdiction.

Here are a few points to pay attention to when reviewing your Associate Agreement:

1. Employee or Independent Contractor:  Regardless of the debate on what is technically legal or acceptable by the IRS, make sure you know which status you are agreeing to.  If taxes on income are not paid correctly, it could come back to bite both the associate and the practice.   Consult a CPA or Attorney on what is correct for your situation.

2. Compensation: Are you going to be paid on collections or on production?  These two do vary, but don’t get stuck in the mindset that production-based income is the only way you will accept to be paid.  Keep in mind that even if you are paid on production, many practices will adjust your future paycheck if there are any unpaid patient balances or write-offs.  In essence, you are being paid on collections anyway.

3. Notice Period: The length of termination periods are widely becoming 30 or more days long.  We’re seeing more and more asking for 60 to 90 days notice.  Understand what is required of you to terminate your employment with a practice.  

4. Restrictive Covenants and Non-Compete Clauses: Dental practices will protect their interest by requiring you to agree to some sort of restrictions upon the termination of your employment.  They will restrict you from practicing dentistry in any capacity within a certain distance for a specified length of time.  There will be other language that restricts you from soliciting patients or staff for a specified time period.   Distance varies upon geography.  For example, rural areas can have 20 miles or more of a restricted zone, while a metro area will be 2 to 5 miles.

5. Lab Expenses:  Most practices are paying these costs; however, make sure to ask if you will be paying for any lab expenses.  There is no real standard on this in the industry.  Practices will have associates pay for half or an amount equal to the Associate’s percentage of pay.  Also, make sure you understand the formula for calculating your pay with lab expenses.  You want the lab expense to be deducted from the total production prior to calculating your percent of pay.  {Pay = % of production * (Production – Lab expense)}

These are just a few of the “biggies” that develop in contract negotiations.  Again, refer to your attorney for precise legal advice.

Posted by Carl Guthrie, Senior Dentist Recruitment Consultant with ETS Dental. To find out more, call Carl at (540) 491-9104 or email at cguthrie@etsdental.com.

Dentist Has Questions About Creating Associate Agreement

I am in serious discussions for the first time in my life with a new dentist who wants to move to the small town I practice in, and work with me. Thank God, as I am and have been swamped for years. He is willing to come on a trial basis, and bring his family. My practice is in a town getting ready to grow dramatically, and is very technologically advanced, so I will have alot to teach him, which is, frankly, probably one of the reasons he wants to come.

I like him and I think this could work but I have absolutely NO experience in this. I know we need a written agreement but I have no idea what is fair to him, how compensation should be structured and how a buy in should be managed....input would be appreciated so I can start this process fairly for both of us.


Thanks
 
You should consider hiring someone that helps owners with associates and buy-ins to help you though the process, not to mention a dental specific attorney for the contracts. some steps to consider:


1. In addition to the base compensation, what professional expenses will you pay, which professional expenses will you expect them to pay?

2. Who pays for health insurance? The malpractice? If it is split, how?

3. If you have a retiremet plan, how will that impact your cost of the associate?

4. How many days initially do you went them to work? What hours? Any specific days? What happens as they get busier?

5. How "new" is the dentist? Do they have any track record on their production ability? If so, estimate that based upon a daily production figure and estimate what that means to your practice in terms of collections.

6. How will it impact your hygiene department? Maybe it won't.

7. Will you be ok cutting back your schedule? How much ?

8. Do some cash flow projections to see how it will impact you. Prepare a best case & worst case scenario. Consider the additional costs: assistants, front desk, supplies, lab, etc...

9. If buy-in is to be considered, what will be the valuation date? Should there be some increase in that price for normal growth NOT associated with the new doctor?

10. What type of entity are you now & should you consider alternatives based upon another doctor in the practice with a potential buy-in?
I figure these 1st 10 steps will keep you busy for now. The first several steps can be the basis for a letter of understanding that you & the associate should agree to. This will be given to your attorney for the employment agreement.
 
This first appeared on Dentaltown.

Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com

For more information or to sign up for our newsletter, please contact arose@dentalcpas.com

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Dental Associate Buy-Out Arrangement

A buyer approached me about an offer they received from their employer of 3 years to buy out one of the 2 equal shareholders, “sure”, I say “let me see the proposal”. The offer was $450,000 for 50% of a practice grossing $1,000,000 here’s the kicker, they wanted the buyer to buy STOCK ! My first thought was “geeze, what is this, a .com company from the year 2000?”

So my work began.

Basically, the sellers had the practice valued 2 years earlier and even then the practice was doing less than $1,000,000. I’m convinced that the valuation was done for a buy-out transaction relating to their shareholder agreement, maybe for life and disability insurance issues. I also believed that the sellers really hadn’t consulted with anyone before making this offer to their associate, it was an innocently BAD offer and they didn’t know any better.

I wound up having a discussion with all 3 doctors about the fact that NO ONE pays 100% of a buy out or buy in as a stock purchase, they usually pay near book value for the stock and the rest of the buyout buy in payment in the form of either an earn in or severance compensation (an income shift). I also prepared my own “price assessment” for the buyer and shared the results with the sellers and they agreed with my conclusions and seemed happy to get the feedback.

We settled on an asset purchase arrangement for around $300,000 plus 50% of the cash & a/r. Seller still got the majority of their proceeds taxed at capital gains and buyer now has income tax deductions that are NOT available when buying stock. I figured the “tax” savings for the buyer between the original offer and what was agreed to was in the neighborhood of $400,000.

The lesson here is for sellers and buyers. For sellers, make sure you seek advice on how to approach your associates when contemplating a buy-in, otherwise you risk alienating them if your proposal is so far out in left field because you simply don’t know any better. For buyers, seek your own advice on any proposals given to you and don’t assume the owners are trying to rip you off simply because an offer may seem of the wall, it’s quite possible that don’t know any better.

This post first appeared on New Docs.

Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com

For more information or to sign up for our newsletter, please contact arose@dentalcpas.com

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Dental Associate Agreements - Trust But Verify

I've been reading quite a few threads recently, NewDocs and on DT about folks trusting in their new bosses and believing that what's been told to them in an interview is what's actually written in their agreement, only to find out later that it's not what they thought.

Don't take it for granted that what you've been told verbally will make it into an agreement. Here are some reasons why it may not:

1. Employer simply forgets what you talked about

2. Employer's attorney already has a template employment agreement and simply forgets to inject specifics the employer mentioned & employer forgets to verify before giving to associate.

3. Employer's attorney simply tells employer NOT to write it into the agreement for whatever reason. Employer either forgets to tell associate OR simply hopes the associate doesn't remember or will simply won't speak up.

4. Employer has 2nd thoughts about what was discussed.

5. Worst case, employer had no intentions of writing it into the agreement.

And there are many more reasons.

You, as the interviewee, should take detailed notes during your interview & near the end of the interview, recap with the prospective employer what was disucussed to make sure what was said was actually meant. If it's a job you like, you should follow up after a day or two with a note to the employer thanking them for the opportunity to interview & how impressed you were with the facilities, etc. & summarizing the details AGAIN of what was disucssed.

After receiving the initial draft of the employment or independant contractors agreement (whatever was discussed) make sure YOU review it & send your notes & thank you letter to your attorney to make sure the agreement includes everything that was discussed AND that it is presented accurately in the agreement.

This is where many associates fail to realize that this is BUSINESS. No matter how cordial the employer was or seemed to be, it's now BUSINESS and YOU need to make sure YOU take care of business. Get that agreement reviewed, hopefully by an attorney with tons of dental experience, to make sure it's written as you expected.

Yes, you'll have to pay hundreds, if not a few thousand dollars to make sure it's accurate, however, if you're entering this arrangement for even a year, that attorney will be able to make sure that your investment is well protected with an agreement that is fair & represents what was disucssed.

Remember, you could stand to make over $100k in a full-time associateship in the first year and a poorly written agreement could easily cost you 5-10% PLUS of total compensation PER YEAR if you're not diligent in your approach.

Don't take it for granted, get ALL your agreements reviewed by an attorney before you sign & accept, it is SMART business.

The post first appeared on New Docs.

Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com

For more information or to sign up for our newsletter, please contact arose@dentalcpas.com

Follow us on Twitter, Facebook and Pinterest